Fine Chemicals E-Book

Peter Pollak

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 429

Veröffentlichungsjahr: 2011

Beschreibung

Now updated - the authoritative reference on one of the most exciting and challenging areas of the modern chemical industry This highly readable and informative reference continues to take a comprehensive, in-depth view of the products, markets, and technology of the fine chemicals industry and business. Dr. Peter Pollak, one of the foremost authorities in the field, provides an insider's unique perspective on fine chemicals from both a technological and a commercial viewpoint, covering all recent developments. He provides ample facts and figures including sixty-three tables, thirty figures, and nineteen photo inserts - making this a well-illustrated and documented text. This reference is divided into three parts: * Part One: The Industry discusses the types of fine chemical companies, the range of products and services, the role of research and development, the underlying technologies, and the challenges facing management * Part Two: The Business explores the key markets for fine chemicals - such as the pharmaceutical, agrochemical, and animal health industries - and the relevant marketing strategies, as well as the ins and outs of pricing, distribution channels, intellectual property rights, account management, and promotion * Part Three: Outlook examines trends such as globalization and outsourcing, forecasts future growth and development by industry segment, and discusses prerequisites for success in the field This new edition features both updated and new information on the offer/demand balance for fine chemicals and the escalating impact of emerging companies in Asia, particularly from China and India. It describes the inversion of the mergers and acquisitions scenario from a seller's to a buyer's market, the broadening of the fine chemical business model, and the expanding role of biotechnology, as well as the impact of increased outsourcing of chemical manufacturing and the growing consumption of pharmaceuticals and agrochemicals by the life science industry. Also included are numerous molecular structures, engineering diagrams, and tables to facilitate understanding. For a thorough understanding of the technology, the business, and the future of the fine chemicals industry, this book's insight is unprecedented. It is ideally suited for those in the industry - including employees, suppliers, customers, investors, and consulting companies - as well as academic and other research organizations, students and educators, public officials, media representatives, and anyone else who wants to understand the intricacies of the industry. Fine Chemicals has been recognized as Outstanding Academic Title 2012 (Choice, v.50, no. 05, January 2013).

Leseprobe

Table of Contents

Cover

Table of Contents

Title page

Copyright page

Dedication

PREFACE

ACKNOWLEDGMENTS

Part I: THE INDUSTRY

CHAPTER 1 What Fine Chemicals Are

1.1 DEFINITION

1.2 POSITIONING ON THE VALUE-ADDED CHAIN

CHAPTER 2 The Fine Chemical Industry

2.1 INDUSTRY STRUCTURE

2.2 FINE CHEMICAL/CUSTOM MANUFACTURING COMPANIES

2.3 CONTRACT RESEARCH ORGANIZATIONS

2.4 LABORATORY CHEMICAL SUPPLIERS

2.5 MERGERS AND ACQUISITIONS (M&A)

CHAPTER 3 Products

3.1 SMALL MOLECULES

3.2 BIG MOLECULES

CHAPTER 4 Technologies

4.1 TRADITIONAL CHEMICAL SYNTHESIS

4.2 BIOTECHNOLOGY

CHAPTER 5 Facilities and Plants

5.1 PLANT DESIGN

5.2 PLANT OPERATION

CHAPTER 6 Research and Development

6.1 OBJECTIVES

6.2 PROJECT INITIATION

6.3 PROJECT EXECUTION AND MANAGEMENT

CHAPTER 7 Cost Calculation

7.1 INVESTMENT COST

7.2 MANUFACTURING COSTS

CHAPTER 8 Management Aspects

8.1 RISK/REWARD PROFILE

8.2 PERFORMANCE METRICS AND BENCHMARKING

8.3 ORGANIZATION

BIBLIOGRAPHY

Part II: THE BUSINESS

CHAPTER 9 Market Size and Structure

9.1 FINE CHEMICAL MARKET SIZE

9.2 MARKET BREAKDOWN BY MAJOR APPLICATIONS

CHAPTER 10 The Business Condition

10.1 OFFER

10.2 DEMAND

CHAPTER 11 Customer Base

11.1 PHARMACEUTICAL INDUSTRY

11.2 AGROCHEMICAL INDUSTRY

11.3 ANIMAL HEALTH INDUSTRY

11.4 OTHER SPECIALTY CHEMICAL INDUSTRIES

CHAPTER 12 Marketing

12.1 ORGANIZATION AND TASKS

12.2 TARGET PRODUCTS AND SERVICES

12.3 TARGET MARKETS: GEOGRAPHIC REGIONS AND CUSTOMER CATEGORIES

12.4 DISTRIBUTION CHANNELS

12.5 PRICING

12.6 INTELLECTUAL PROPERTY RIGHTS

12.7 SUPPLY CONTRACTS

12.8 PROMOTION

12.9 NETWORK AND CONTACT DEVELOPMENT

12.10 KEY ACCOUNT MANAGEMENT

BIBLIOGRAPHY

Part III: OUTLOOK

CHAPTER 13 General Trends and Growth Drivers

CHAPTER 14 Globalization

14.1 WESTERN HEMISPHERE

14.2 EASTERN HEMISPHERE

14.3 COOPERATION MODELS

CHAPTER 15 Biotechnology

15.1 SMALL MOLECULES (WHITE BIOTECHNOLOGY)

15.2 BIG MOLECULES (BIOPHARMACEUTICALS)

CHAPTER 16 Ethical Pharmaceutical Industry

16.1 RESTRUCTURING AND OUTSOURCING

16.2 R&D PRODUCTIVITY

16.3 BUSINESS IMPACT

CHAPTER 17 Generics

17.1 SMALL MOLECULE GENERICS

17.2 BIOSIMILARS

CHAPTER 18 Other Life Science Industries

18.1 AGRO FINE CHEMICALS

18.2 ANIMAL HEALTH INDUSTRY

CHAPTER 19 Contract Research Organizations

CHAPTER 20 Conclusion: Who Is Fittest for the Future?

BIBLIOGRAPHY

ABBREVIATIONS

APPENDICES

A.1 Information Sources/Life Sciences

A.2 Checklist for New Product Evaluation

A.3 Project Schedule, Custom Manufacturing Project

A.4 Company Scorecard

A.5 Job Description for Business Development Manager

A.6 Checklist for the Selection of Outsourcing Partners

A.7 Checklist for the Manufacture of Nonregulated (or Basic GMP) Fine Chemicals

A.8 Checklist for Customer Visit

A.9 Outline for a Company Presentation

A.10 Overseas Expansion of Indian Pharma and Fine Chemical Companies

A.11 Asian Expansion of Western Fine Chemical Companies

Index

Color Plates

Copyright © 2011 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Fine chemicals : the industry and the business/edited by Peter Pollak.—2nd ed.

p. cm.

ISBN 978-0-470-62767-9 (cloth)

ISBN 978-1-118-00222-3 (ebk)

 1. Chemicals. 2. Chemical engineering. 3. Chemical industry. I. Pollak, Peter, 1934–

TP200.F525 2010

660—dc22

2010033575

To Maria, Barbara, and Paolo

PREFACE

PREFACE TO THE SECOND EDITION

This revised edition has been prepared in order to provide the reader with an updated view of the fine chemical industry and business. Actually, the most recent data used in the first edition go up to 2005. Since then, both the fine chemicals industry itself and its customers have undergone substantial changes: The business as a whole is more competitive now due to the escalating impact of low-cost players from the Far East on the one hand, and the passing-on of the price pressure the life science industry is subject to itself on the other hand. Many Western fine chemical companies or divisions created during the “irrational exuberance” at the turn of the millennium have exited from the sector. As described in Section 5.2, Plant Operation, the most progressive companies adopt lean production principles originally developed by the automotive industry. In this context, Section 7.2, Manufacturing Costs, has also been refined. As described in the new Section 2.5, Mergers and Acquisitions, the M&A scenario has inverted from a seller’s to a buyer’s market. Private equity firms have become owners of a number of fine chemical companies. The business model of the fine chemical industry has broadened and now often includes also contract research at the beginning and active ingredient formulation toward the end of the value-added chain. This development is not finding unanimous approval by industry experts. Biotechnology now plays a bigger role. In the synthesis of small molecules, the use of enzymes has become more widespread as it enables both a more sustainable and economic production. Big molecules have firmly established themselves as active ingredients in the life science industry. Thus, biopharmaceuticals now account for five of the ten top selling pharmaceuticals. To the detriment of originator drugs and agrochemicals, the market share of generics has increased. It now also comprises generic versions of biopharmaceuticals (see the new Section 17.2, Biosimilars).

Faced with slower growth, patent expirations of many lucrative blockbuster drugs, and stalling new product launches, leading pharmaceutical companies are facing challenges as never before. They react by implementing restructuring programs. These comprise, among others, reduction of their in-house chemical manufacturing and plant eliminations. Outsourcing of chemical manufacturing has moved up from a purely opportunistic to a strategic approach. Apart from restructuring, globalization is also affecting the fine chemicals industry (see Chapter 14). In the pharm-emerging countries, double-digit growth of the consumption of pharmaceuticals and agrochemicals—and the production of their active ingredients—is taking place. With their combination of 40% of the world’s population and the “low-cost/high-skill/high-future” industrial base, they represent a great challenge to the European and U.S. fine chemicals industry. A business condition could develop, whereby even “best-in-class” midsized, family-owned fine chemical companies with superior technology portfolios and footholds in Asia could be relegated to producing small quantities of fine chemicals for new life science products in late stages of development (see Chapter 20).

PETER POLLAK

PREFACE TO THE FIRST EDITION

This book provides an insider’s view of the status of the fine chemical industry, as well as its outlook. It covers all aspects of this dynamic industry, with all of its stakeholders in mind, viz. employees, customers, suppliers, investors, students and educators, media representatives, neighboring communities, public officials, and anyone else who has an interest in this segment of the chemical industry. Safety, health, environmental, and regulatory issues are discussed only briefly, as the related subjects are extensively covered in the specialized literature.

The main raison d’être of the fine chemical industry is to satisfy the product and process development needs of the specialty chemicals, especially the life science (primarily pharmaceutical and agrochemical) industry. Sales outside the chemical industry remain the exception. The fine chemical industry has evolved mainly because of the rapid growth of the Anglo-Saxon pharmaceutical industry, which traditionally has been more inclined to outsourcing chemical manufacturing than the continental European one—and the increasing complexity of the drug molecules. The roots of both the term “fine chemicals” and the emergence of the industry as a distinct entity date back to the late 1970s, when the overwhelming success of the histamine H2 receptor antagonists Tagamet (cimetidine) and Zantac (ranitidine hydrochloride) created a strong demand for advanced intermediates used in their manufacturing processes. The two drugs cure stomach ulcers, thus eliminating the need for surgical removal of ulcers. As the in-house production capacities of the originators, Smith, Kline & French and Glaxo, could not keep pace with the rapidly increasing requirements, both companies outsourced part of the synthesis to chemical companies in Europe and Japan experienced in producing relatively sophisticated organic molecules. Also, the fledgling generics industry had no captive production of active pharmaceutical ingredients (APIs) and purchased their requirements. Moreover, the growing complexity of pharmaceutical and agrochemical molecules and the advent of biopharmaceuticals had a major impact on the evolution of the fine chemical industry as a distinct entity. Custom manufacturing, respectively its counterpart, outsourcing, has remained the Königsdisziplin (i.e., the most prominent activity) of the fine chemical industry and “make or buy” decisions have become an integral part of the supply chain management process. The fine chemical industry has its own characteristics with regard to R&D, production, marketing, and finance. The total turnover of the largest companies, respectively business units does not exceed a few hundred million dollars per year. The fine chemical industry supplies advanced intermediates and active substances, frequently on an exclusive basis, to the pharmaceutical, agrochemical, and other specialty-chemical industries. Further distinctions are batch production in campaigns, high asset intensity, and above-industry-average R&D expenditures. The industry is still located primarily in Europe. Custom manufacturing prevails in northern Europe; the manufacture of active substances for generics, in southern Europe.

As of today, the majority of the global $85 billion production value of fine chemicals continues to be covered by captive production, leaving a business potential of $60 billion for the fine chemical industry … on top of the inherent growth of the existing business. Despite this huge business opportunity, the fine chemical industry is challenged by overcapacity and intense competition. As a result of early riches, many chemical companies sought relief from their dependence on cyclical commodities by diversifying into higher-value-added products, like fine chemicals. At present, the industry is going through two interconnected changes. In terms of geography, Far Eastern “high-skill/low-cost” companies are emerging as serious competitors. In terms of structure, the chemical conglomerates are divesting their (often loss-making) fine chemical businesses. They are becoming mostly privately owned pure players. Although the demand has not grown to the extent initially anticipated, fine chemicals still provide attractive opportunities to well-run companies, which are fostering the critical success factors, namely running fine chemicals as core business, making niche technologies—primarily biotechnology—a part of their business and developing assets in Asia.

PETER POLLAK

ACKNOWLEDGMENTS

SECOND EDITION

For the preparation of the second edition of this book, I am indebted to a number of colleagues, who, as experts in specific fields, provided me with their very valuable inputs: Rolf Dach, Boehringer Ingelheim; Jacques Gosteli, Cerecon AG; Vihari Purushothaman, Enam Securities Pvt Ltd.; Wilfried Eul and Dan Ostgard, Evonik Degussa; Anish Swadi, Hikal Ltd, Stefan Stoffel and Robert Voeffray, Lonza Ltd.; Ian Shott, Shott Consulting, Andrew Warmington, Speciality Chemicals Magazine, and Dimitrios Kalias, Vio Chemicals Ltd.

FIRST EDITION

I would like to acknowledge all individuals, both peers and customers from my present consulting activity, and colleagues from my former association with Lonza, who have helped me in conceiving, writing, and reviewing this book. I am particularly indebted to Rob Bryant (Brychem) and Ian Shott (Excelsyn), who have shared with me both their profound knowledge of and their ability to communicate with the industry. I am also very grateful for the valuable input, whether in providing data or in proofreading, that the following individuals have kindly provided: Vittorio Bozzoli, Ron Brandt, Uli Daum, Peter Demcho, Erich Habegger, Wouter Huizinga, Mario Jaeckel, Myung-Chol Kang, Dr. Masao Kato, Christine Menz, Hans Noetzli, H. Barry Robins, and Carlos Rosas.

Without this invaluable assistance from these friends and colleagues, I would not have been able to embark on this ambitious undertaking.

Part I: THE INDUSTRY

CHAPTER 1

What Fine Chemicals Are

1.1 DEFINITION

The underlying principle for definition of the term “fine chemicals” is a three-tier segmentation of the universe of chemicals into commodities, fine chemicals, and specialty chemicals (see Fig. 1.1). Fine chemicals account for the smallest part, about 4% of the total $2500 billion turnover of the global chemical industry (see Section 9.1).

Figure 1.1 Definitions.

Commodities are large-volume, low-price homogeneous, and standardized chemicals produced in dedicated plants and used for a large variety of applications. Prices, typically less than $1/kg, are cyclic and are fully transparent. Petrochemicals, basic chemicals, heavy organic and inorganic chemicals, (large-volume) monomers, commodity fibers, and plastics are all part of commodities. Typical examples of single products are ethylene, propylene, acrylonitrile, caprolactam, methanol, toluene, o-xylene, phthalic anhydride, poly (vinyl chloride) soda, and sulfuric acid.

Fine chemicals are complex, single, pure chemical substances. They are produced in limited quantities (up to 1000 MT per year) in multipurpose plants by multistep batch chemical or biotech(nological) processes. They are based on exacting specifications, are used for further processing within the chemical industry, and are sold for more than $10/kg (see Fig. 1.1).

Fine chemicals are “high-value chemicals purchased for their molecular qualities rather than for their functional performance, usually to make drugs.”

–Rick Mullin, Chemical & Engineering News

The category is further subdivided on the basis of either the added value (building blocks, advanced intermediates, or active ingredients) or the type of business transaction (standard or exclusive products). As the term indicates, exclusive products are made exclusively by one manufacturer for one customer, which typically uses them for the manufacture of a patented specialty chemical, primarily a drug or agrochemical. Typical examples of single products are β-lactams, imidazoles, pyrazoles, triazoles, tetrazoles, pyridine, pyrimidines, and other N-heterocyclic compounds (see Section 3.1). A third way of differentiation is the regulatory status, which governs the manufacture. Active pharmaceutical ingredients (APIs) and advanced intermediates thereof have to be produced under current Good Manufacturing Practice (cGMP) regulations. They are established by the (U.S.) Food and Drug Administration (FDA) in order to guarantee the highest possible safety of the drugs made thereof. All advanced intermediates and APIs destined for drugs and other specialty chemicals destined for human consumption on the U.S. market have to be produced according to cGMP rules, regardless of the location of the plant. The regulations apply to all manufacturing processes, such as chemical synthesis, biotechnology, extraction, and recovery from natural sources. All in all, the majority of fine chemicals have to be manufactured according to the cGMP regime.

A precise distinction between commodities and fine chemicals is not feasible. In very broad terms, commodities are made by chemical engineers and fine chemicals by chemists. Both commodities and fine chemicals are identified according to specifications. Both are sold within the chemical industry, and customers know how to use them better than do suppliers. In terms of volume, the dividing line comes at about 1000 tons/year; in terms of unit sales prices, this is set at about $10/kg. Both numbers are somewhat arbitrary and controversial. Many large chemical companies include larger-volume/lower-unit-price products, so they can claim to have a large fine chemicals business (which is more appealing than commodities!). The threshold numbers also cut sometimes right into otherwise consistent product groups. This is, for instance, the case for APIs, amino acids, and vitamins. In all three cases, the two largest-volume products, namely, acetyl salicylic acid and paracetamol; L-lysine and D,L-methionine, and ascorbic acid and niacin, respectively, are produced in quantities exceeding 10,000 tons/year, and are sold at prices below the $10/kg level.

Specialty chemicals are formulations of chemicals containing one or more fine chemicals as active ingredients. They are identified according to performance properties. Customers are mostly trades outside the chemical industry and the public. Specialty chemicals are usually sold under brand names. Suppliers have to provide product information. Subcategories are adhesives, agrochemicals, biocides, catalysts, dyestuffs and pigments, enzymes, electronic chemicals, flavors and fragrances, food and feed additives, pharmaceuticals, and specialty polymers (see Chapter 11).

The distinction between fine and specialty chemicals is net. The former are sold on the basis of “what they are”; the latter, on “what they can do.” In the life science industry, the active ingredients of drugs, also known as APIs or drug substances (DS), are fine chemicals, the formulated drugs specialties, aka drug products (DP) (see Chapter 2).

Electronic chemicals (see Section 11.4.5) provide another illustrative example of the difference between fine and specialty chemicals: Merck KGaA produces a range of individual fine chemicals as active substances for liquid crystals in a modern multipurpose plant in Darmstadt, Germany. An example is (trans,trans)-4-[difluoromethoxy)-3,5-difluorophenyl]-4′-propyl-1,1′-bicyclohexyl. Merck ships the active ingredients to its secondary plants in Japan, South Korea, and Taiwan, where they are compounded into liquid crystal formulations. These specialties have to comply with stringent use-related specifications (electrical and color properties, etc.) of the Asian producers of consumer electronics such as cellular phones, DVD players, and flat-screen TV sets.

“Commoditized” specialty chemicals contain commodities as active ingredients and are interchangeable. Thus, ethylene glycol “99%” is a commodity. If it is diluted with water, enhanced with a colorant, and sold as “super antifreeze” in a retail shop, it becomes a commoditized specialty.

Note: Sometimes fine chemicals are considered as a subcategory of specialty chemicals. On the basis of the definitions given above, this classification should be avoided.

1.2 POSITIONING ON THE VALUE-ADDED CHAIN

An example of the value-added chain extending from commodities through fine chemicals to a pharmaceutical specialty is shown in Table 1.1. The product chosen is Pfizer’s anticholesterol drug Lipitor (atorvastatin), the world’s top-selling drug with sales of $11.4 billion in 2009.

TABLE 1.1 Example for the Value-Added Chain in the Chemical Industry: Lipitor (Atorvastatin)

a Active pharmaceutical ingredient.

b Patent holder; several generic producers preparing for launch.

Note: Figures are indicative only.

Key: B, batch; C, continuous; D, dedicated; M, multipurpose.

(I) Ethyl (R)-4-cyano-3-hydroxy butanoate, “hydroxynitrile.”

(II) tert-Butyl (4R,6R)-2-[6-(2-aminoethyl)-2.2-dimethyl-1.3-dioxan-4-yl]acetate.

(III) 2-(4-Fluorophenyl)-β,δ-dihydroxy-5-(1-methylethyl)-3-phenyl-4-[(phenylamino)-carbonyl]-1H-pyrrole- heptanoic acid.

The value-added chain extends from a C1 molecule, methanol (left side of the table), all the way to a C33 molecule, atorvastatin. The indicative $2000 cost per kilogram API corresponds to about 4% of the price of the formulated prescription drug ($400 for 100 80 mg tablets) bought in the pharmacy. The structure of compound III in Table 1.1 is as follows:

Methanol and acetic acid are typical commodities, namely, low-price/ polyvalent products manufactured in large quantities by many companies. Under the heading “fine chemicals,” three molecules used for the manufacture of atorvastatin are listed, namely, the advanced intermediates ethyl 4- chloro-3-hydroxy butanoate (I) and tert-butyl (4R,6R)-2-[6-(2-aminoethyl)-2.2-dimethyl-1.3-dioxan-4-yl] acetate (II), respectively, and the API, atorvastatin (III) itself. As long as the latter, 2-(4-fluorophenyl)-β,δ-dihydroxy-5-(1-methylethyl)-3-phenyl-4-[(phenylamino)-carbonyl]-1H-pyrrole-heptanoic acid, is sold according to specifications, it is a fine chemical. In the pharmaceutical industry, the chemical synthesis of an API is also referred to as primary manufacturing. The secondary manufacturing comprises the formulation of the API into the final delivery form. The API is compounded with excipients that confer bulkiness, stability, color, and taste. Once atorvastatin is tableted, packed, and sold as the anticholesterol prescription drug Lipitor, it becomes a specialty.

CHAPTER 2

The Fine Chemical Industry

2.1 INDUSTRY STRUCTURE

Within the chemical universe, the fine chemical industry is positioned between the commodity and specialty chemical industries. The latter are their suppliers and customers, respectively. Among the customers, life sciences, especially the pharmaceutical industry, prevail (see Section 9.2). In the broad sense, fine chemical companies are active in research and development, manufacturing, and marketing of fine chemicals. They represent a wide variety of several 1000 enterprises offering mainly products and services along the drug supply chain (see Fig. 2.1). They extend from small, privately owned laboratories all the way to large, publicly owned manufacturing companies. However, not all of them encompass all three activities. Whereas Western fine chemical companies still dominate in sales revenues, most of the small ones are located in Asia.

Figure 2.1 Drug development stages.HTS, high-throughput screening; API, active pharmaceutical ingredient.

Source: Lonza

Fine chemical/custom manufacturing (CM) companies in the narrower sense are active in process scale-up, pilot plant (trial) production, and industrial-scale exclusive and nonexclusive manufacture and marketing. Their product portfolios comprise exclusive products, produced by CM (see Section 12.2.1), nonexclusive products, for example, active pharmaceutical ingredient (API)-for-generics (12.2.2), and standard products (12.2.3).

Contract research organizations (CROs, see Section 2.3) provide process development and bench scale synthesis services. Fine chemical companies which are both CM companies and CROs are called contract research and manufacturing companies (CRAMS).

Laboratory chemical suppliers (see Section 2.4) offer a large number (thousands) of different kinds of chemicals in small quantities for research purposes.

Finally, there are firms that do neither contract research nor manufacturing. They are distributors and/or agents of integrated fine chemical companies.

Fine chemical/CM companies account for the largest share of the industry, followed by chemical CROs and laboratory chemical suppliers.

Note: As both contract research organizations and laboratory chemical suppliers provide primarily services, their revenues are excluded from the total size of the fine chemical business, as discussed in Chapter 9.

2.2 FINE CHEMICAL/CUSTOM MANUFACTURING COMPANIES

Fine chemicals are produced either in-house by pharmaceutical or other specialty chemical companies for their captive needs, or as sales products by fine chemical companies. The latter, that is, the merchant market, accounts for about one-third of the total (captive + merchant) value of $85 billion (see Table 9.2). In business transactions, CM prevails over straight trading of standard products. Whereas the pharma industry constitutes the dominant customer base for most fine chemical companies, some have a significant share of products and services for the agrochemical industry. Examples are Archimica, Saltigo (both in Germany) and Hikal, India.

Only a minority of the companies have been founded with the specific intent of producing fine chemicals, for example, F.I.S. and Flamma, Italy; Hovione, Portugal; Synthetech, USA; and Divi’s Laboratories, India. Some have developed by forward integration from fertilizers and chemical commodities, for example, BASF (Germany), Daicel (Japan), Jubilant Organosys (India), and Lonza (Switzerland), or from coal mining, for example, DSM (The Netherlands) and UBE (Japan). Others have emerged from diversification, for example, Evonik (Germany) from noble metals; Dottikon Exclusive Synthesis (Switzerland); SNPE (France) from explosives; and Novasep (France) from separation equipment manufacturing. Finally, some originated from pharmaceutical companies, for example, Fermion (Finland), Nicholas Piramal (India), and Siegfried (Switzerland).

Several large pharmaceutical companies market fine chemicals as subsidiary activity to their production for captive use, for example, Abbott, USA; Bayer Schering Pharma, Boehringer-Ingelheim, Germany; Daiichi-Sankyo (after the takeover of Ranbaxy), Japan; Genzyme, USA; Johnson & Johnson, USA; Merck KGaA, Germany; Pfizer (formerly Upjohn), USA.

The fine chemical industry is very fragmented. The top 20 companies have a market share of merely 20%, the top 40 have 30%. In comparison, the top 20 pharma companies have a market share of more than 50%. They also vary substantially in size. The largest ones have sales of more than $500 million; the smallest ones, a few million dollars per year (see Table 2.1). The leading companies are typically divisions of large, diversified chemical companies. The majority are located in Europe, particularly along the axis Amsterdam (The Netherlands)/Basel (Switzerland)/Florence (Italy) and in the United Kingdom.

TABLE 2.1 Structure of the Fine Chemical Industry

In terms of size, resources, and complexity of the chemical process technologies mastered, the fine chemical companies can be broadly divided into three categories (see Table 2.1).

The top tier, about 20, have sales in excess of $250 million per year (see Table 2.2. Most are divisions or business units (b.u.’s) of large, multinational companies. There are only a few pure players in fine chemicals. All are active both in standard products (especially API-for-generics) and CM. They have extensive resources in terms of specialists, plants, process knowledge, backward integration, international presence, and so on. Their manufacturing plants spread over many different locations. Many have grown to their present size through massive acquisitions. Examples are Albemarle, BASF, DSM, Evonik-Degussa, Johnson Matthey, and Pfizer CentreSource.

TABLE 2.2 Leading Fine Chemical Companies (Resp. Divisions)

a Part of the sales derive from non-fine chemical activities, for example, formulated generics, catalysts, excipients.

b 2008.

E Estimate (no figures published by the company).

HMW, high molecular weight; LMW, low molecular weight.

Very few of the large companies (resp. divisions) listed are pure players in fine chemicals. Considering only fine as defined in Section 1.1, their market share varies between 1% or less for BASF and Pfizer all the way to 100% for F.I.S. and Siegfried. Custom manufacturing typically accounts for at least half of total sales; the balance is standard products, primarily API-for-generics. The European and U.S. pharmaceutical industry is the major customer base. Sales of the majority of the Western companies have been essentially flat in the period 2002–2009. In contrast, strong sales growths were achieved by the Far Eastern companies. Among the Western companies, Boehringer-Ingelheim, Lonza, and SAFC developed above average; Boehringer-Ingelheim and Lonza grew due to their blooming biopharmaceutical businesses, while SAFC started relatively recently from a low level and grew by acquisitions. Because of the high incidence of fixed costs, profits of most firms were even more affected than sales revenues (see Fig. 8.2). Businesses grown by acquisitions during the “irrational exuberance” of the late 1990s suffered most. Thus, Bayer Fine chemicals’, Clariant’s, and Rhodia Pharma Solutions’ sales eroded, and losses were reported prior to the spin-off as, respectively, takeovers by Saltigo, Archimica, and Shasun.

A ranking of the companies according to the size of their fine chemical business is not possible because each of them has a different classification and a different definition of the term “fine chemicals.”

Within the world’s number 1 chemical company, BASF (sales 2009: $73 billion), fine chemicals are part of the division care chemicals. The division had revenues of €3.405 billion/$4.4 billion in 2009 and comprises both specialties (e.g., surfactants, UV filters, chelating agents, and excipients) and fine chemicals, namely the vitamins A, B2, C, and E, carotenoids, enzymes, APIs, for example, caffeine, ibuprofen, and pseudoephedrine, and exclusive products for the pharma industry. Financials are only broken down to the divisional level. It is estimated, that fine chemicals account for not more than 15% of the division’s sales.

A similar situation is encountered with Albemarle. The $500 million sales of the fine chemicals segment comprise, apart from exclusive synthesis and APIs (ibuprofen, naproxen), commodities such as bromine and derivatives, potassium and chlorine chemicals, aluminium oxide, tertiary amines, and specialties such as biocides, oilfield chemicals, paper sizers and fillers, matting agents for paints and coatings, so that the factual fine chemicals business accounts for not more than $100–150 million.

The second tier consists of several dozens of midsized companies. They include both independents and subsidiaries of major companies. A number of these companies are privately owned and have grown mainly by reinvesting the profits. Examples are Bachem, Switzerland; Dishman, India; F.I.S. and Poli Industria Chimica, Italy; Hikal, India; and Hovione, Portugal. The portfolio of the midsized companies comprises both exclusive synthesis and API-for-generics, and sales are in the range of $100–$250 million per year.

Finally, there are hundreds of small independents with sales below $100 million per year. Most of them are located in Asia.

Each of the three tiers accounts for approximately the same turnover, namely about $10 billion.

All big and medium-sized fine chemical companies have current Good Manufacturing Practice (cGMP)-compliant plants that are suitable for the production of pharmaceutical fine chemicals (PFCs). With the exception of biopharmaceuticals, which are manufactured by only a few selected fine chemical companies, primarily Boehringer-Ingelheim’s biopharmaceuticals division, Lonza, and Nicholas Piramal (formerly Avecia), the technology toolboxes of all these companies are similar. This means that they can carry out practically all types of chemical reactions. They differentiate on the basis of the breadth and quality of the service offering. Most of the medium-sized fine chemical companies are located in Europe, particularly in France, Germany, Italy, the United Kingdom, and Switzerland. Italy and Spain, where international drug patent laws were not recognized until 1978 and 1992, respectively, are strongholds of API-for-generics (see Section 12.2.2). Midsized fine chemical companies have traditionally performed better than large ones. Because of their inherently more attractive offering, this situation will be accentuated in the future.

Large fine chemical companies, in contrast to midsized and small ones, are characterized by

Lack of Economy in Size. As most fine chemicals are produced in quantities of not more than a few 10 tons per year in multipurpose plants, there is little or no economy of size (see Section 5.1). The reactor trains of these plants are similar throughout the industry. Regardless of the size of the companies, their main constituents, the reaction vessels, have a median size of the 4–6 m3. Various products are made throughout a year in campaigns. Therefore, the unit cost per cubic meter per hour practically does not vary with the size of the company.Contrary to what one would expect, size also frequently does not result in a reduction of risks. More likely it leads to an increasing dependence on very few key customers and products.Dichotomy between Ownership and Management. The company’s shares are listed on stock exchanges, and their performance is scrutinized by the financial community, which has a short-term view. Postponement of a single important shipment can affect a quarterly result. In the small and midsized companies, the owners typically are the major shareholders, often members of the same family. Their shares are not traded publicly and fluctuations in their financial performance are more easily coped with.Complicated Business Processes. Flexibility and responsiveness are in jeopardy. Customer complaints, for instance, are difficult to handle in a straightforward manner: Before the big company can determine in which plant the defective batch had been produced, the small company would have settled the complaint.A business development manager, who had moved from a big to a small fine chemical company, stated that “At my previous employer, it took me three trips to the USA and one to Italy just to determine, which step should be produced at which site.”Heterogeneous Portfolio of Small Companies, Accumulated over Time through M&A Activities. The key functions, such as production, R&D, and M&S, are located on different sites, often in different countries.Cohabitation with Other Units. Running side by side units of different size, serving different markets, and using different technologies is a daunting management task.

Customers prefer to do business with midsized companies because communications are easier (they typically deal directly with the decision maker)—and they can better leverage their purchasing power. They also do not want to depend too much on single, large, and powerful suppliers (where they do not know “who is in charge”).

The small fine chemical companies have only limited capabilities and often specialize in niche technologies, such as reactions with hazardous gases (e.g., ammonia/amines, diazomethane, ethylene oxide, halogens, hydrogen cyanide, hydrogen sulfide, mercaptans, ozone, nitrous oxides, phosgene). Their small size, however, is not necessarily a disadvantage. The minimum economical size of a fine chemical company depends on the availability of infrastructure. If a company is located in an industrial park, where analytical services, utilities, safety, health, and environmental (SHE) services, and warehousing are readily available, there is practically no lower limit. New fine chemical plants have come onstream mostly in Far East countries over the past few years (as of 2006), but their annual turnover rate rarely exceeds $25 million.

Midsized and small fine chemical companies were also impacted by the slump in demand for new PFCs. By and large, they fared better than did the large companies, the drawbacks of which have been described above. Selected small and midsized fine chemical companies are listed here:

Europe: Belgium (Omnichem [Ajinomoto]), Czech Republic (Interpharma, Synthesia), Denmark (Axellia Pharmaceuticals, Polypeptide), Germany (Archimica, Chemische Fabrik Berg, Corden Pharma, Girindus, Organica Feinchemie Wolfen, Pharma Waldhof, Wacker Chemie), Finland (Fermion,* KemFine), France (Axyntis, La Mesta Chimie Fine [AETGroup], Isochem [acquired by Aurelius from SNPE in 2010] Minakem, Orgasynth, PCAS, Simafex, Synchem], Hungary (Egis Pharma,* Gedeon Richter*), Israel (Chemada, Chemagis), Italy (Dipharma, Erregierre, F.I.S. (see photo 1 in the insert), Flamma, Recordati,* Zach Systems), Latvia (Olainfarm), Norway (Borregaard), Poland (Polpharma), Portugal (Hovione), Spain (Esteve Quimica,* Medichem, Uquifarma [Yule Catto]), Sweden (Dupont Chemoswed), Switzerland (Bachem, CU Chemie Uetikon, Cilag [J&J], Dottikon ES, Helsinn,* Siegfried]), Turkey (Atabay), and United Kingdom (Aesica Pharmaceuticals,* Contract Chemicals, Excelsyn, Robinson Brothers).North America: USA (Albany Molecular Research, Albemarle, AMPAC Fine Chemicals, Ash Stevens, Cambridge Major Laboratories, Codexis, Ferro Pfanstiehl Pharmaceuticals, SAFC, Synthetech [acaquired by WR Grace in 2010]), Canada (Delmar).Far East: China (Zhejiang Huayi Pharmaceutical, Zhejiang Hisun Pharmaceutical), India (Cipla,* Divi’s Laboratories, Dishman, Hikal, Jubilant Organosys, Nicholas-Piramal, Ranbaxy,* Suven), Japan (API Corp., Daicel F.C., Kuraray, Nippoh, Nippon Gohsei, Takasago, UBE F.C.), South Korea (Hanmi Pharm,* Samchully, SK Energy & Chemicals), Taiwan (Scinopharm, Syn-Tech).Note: *Fine chemical companies that are also active in formulated pharmaceuticals.

A comprehensive list of about 1400 fine chemical companies (including traders) can be found in the “event catalogue” of the CPhI exhibition (see Appendix A.1). A category of mostly European and American small fine chemical companies do not have manufacturing plants and concentrate on research and process development (see Chapter 3).

2.3 CONTRACT RESEARCH ORGANIZATIONS

CROs provide services to the life science, especially pharmaceutical, industries along product development. There are more than 2000 CROs operating worldwide, representing revenues of more than $20 billion. One distinguishes between “product” CROs and “patient” CROs.

Patient CROs, aka chemical CROs are providing primarily process research and development services. Their tasks are described in Table 2.3. Whereas the production sites of contract manufacturing organizations (CMOs) are multipurpose plants, allowing for the production of tens to hundreds of tons of fine chemicals, the “workplaces” of patient CROs are the test persons (volunteers) for the clinical trials and those of the product CROs are the laboratory benches. An overlap between the latter and CMOs exists with regard to pilot plants (100 kg quantities), which are part of the arsenal of both types of enterprise. Companies offering CRAMS, aka one-stop-shops, also exist. They are described at the end of this chapter.

TABLE 2.3 Tasks of “Product” Contract Research Organizations

Source: Jan Oudenes, Alphora Research, private communication.

TaskDescriptionSample PreparationSynthetic PFCsLaboratory preparation of PFCs, impurities, metabolites, etc.Natural productsProduct extraction, purification, and characterizationProcess DevelopmentGeneralUpgrading of laboratory procedures to economically and ecologically viable industrial-scale manufacturing processesa (including examination of process parameters)Route screeningEvaluation of the most suitable synthetic or biotechnological route (mostly by literature search)Proof of principleConfirmation of selected route based upon economic and quality criteria, equipment specifications, etc.Sample preparationReference and impurity standards of PFCsSafety and toxicology studiesHazard and toxicological (including genotoxicity) tests required for industrial-scale manufactureAnalyticsAnalytical method development and validationProcess researchProcess optimizationDefinition of the parameters for industrial-scale manufactureMethod validationStability studiesRegulatory affairsProduction permitsAPI submissions (IND, NDA support)Scale-up (kilogram-laboratory/ pilot and industrial scale plant production)Confirmatory testing of the processPreclinical and clinical trial quantitiesValidation manufacturing (Phase III and beyond)

a See also Chapter 6.

IND, investigational new drug; NDA, new drug approval (or applications).

The offerings of patient CROs, aka clinical CROs, comprise more than 30 tasks addressing the clinical part of pharmaceutical development at the interface between drugs, physicians, hospitals, and patients. Examples are the clinical development and selection of lead new drug compounds, planning, monitoring, and analyzing Phase I–IV clinical studies, ADMET (absorption, distribution, metabolism, excretion, and toxicity) studies, development of diagnostic kits, and devising and executing complex marketing programs for launching new drugs. The patient CROs have rudimental capabilities for synthesizing PFCs at best. As clinical trials, including the associated data management, represent the largest expense in pharmaceutical research, the market for patient CROs is larger than for their product counterparts. Thus, the sales of the top-tier firms are in the $1–$2 billion range, whereas the largest product CROs have revenues of a few $100 million (see Table 2.4). The distinction between the two types of CROs has become blurred recently. Thus, Aptuit, USA, is very diversified. Apart from clinical research services, its activities also comprise clinical operations, small-scale manufacturing of high potency and cytotoxic APIs, drug formulation, packaging, and distribution.

TABLE 2.4 Major “Product” and “Patient” Contract Research Organizations

“Product” CROsNorth AmericaAlphora, Canada (85b); AMRI, USA (229 milliona/1200b); Aptuit, USA ($2.7 billiona/2700b ); Cambridge Major, USA (175b, 50c); ChemBridge (300b); Delmar, Canada (70b); Innocentive, USA (N/A): Irix Pharmaceuticals, USA (150b/100c); NAEJA, Canada ($150 milliona/120b); PharmEco, USA (120b)EuropeCarbogen-Amcis, Switzerland (450b/120c); Chemcomm, Germany (50c); ChemDiv, Russia (N/A); Clauson-Kaas, Denmark (30b); CRS Clinical Research Services, Germany (150b) Enamine, Russia (300b); Excelsynd, UK ($15 milliona/60b); Girindus, Germany (75b); Nerviano Medical Sciences, Italy (700b); Onyx- Scientific, UK (40b/36c); Recipharm, Sweden ($265 milliona/1900b); Serichim, Italy (24b/14c); Solvias, Switzerland ($60 milliona, 280b)AsiaAcoris, India (50b); Aptuit Laurus, India (700b); Biocon/Syngene, India (3000b); BioDuro, China (675c); Chembiotek, India (300c); Chempartner, China (2000b/1250c); Medicilon, China 400b/240 c); NARD Institute, Japan (N/A); Pharmaron, China (700b); ProCitius, India ($350 milliona); Riken, Japan ($23 milliond); WuXi AppTec, China ($270 milliona/>4000b, 2800c)“Patient” CROsNorth AmericaCharles River Laboratories, USA ($1.2 billiona/8100b); Covance, USA ($1.9 billiona/9800b); Icon, Ireland ($0.9 billiona/7200b); Parexel, USA ($1 billiona/9000b); PPD, USA ($3 billiona/10,500b); Quintiles Transnational, USA ($2+ billiona/23,000b)EUBiotrial, France (250b); Focus, Germany (120b); Pharmalog, Germany (50c); TFS Trial Form Support, Sweden ($50 milliona/430b) AsiaChemizon, South Korea (150b); gvk BioSciences, India (1400b); TCG Lifesciences, India (1000b); Virginia CRO, Taiwan (N/A)

aSales (2009).

bTotal staff.

cScientists.

dLife Science unit only, Excelsyn was acquired by AMRI for $19 million in February 2010.

Major product and patient contract research organizations are listed in Table 2.4.

There are about 50–100 “product” CROs in developed countries, either stand-alone companies or divisions of larger chemical companies, with a widely differing degree of width and depth of their offering. The typical history of a CRO begins with a chemist working on a thesis and trying to make some pocket money by preparing samples for a life science company. Gradually, the chemist’s part-time job develops to a full-time activity. Colleagues are employed, and a CRO company is founded. Most “product” CROs are privately held and have revenues of $10–$20 million per year or less, adding up to a total business in the range of $1.5–$2 billion.

Major customers for CRO services are the large global pharmaceutical companies. Half a dozen “big pharma’s” (Pfizer, GlaxoSmithKline, Sanofi-Aventis, AstraZeneca, Johnson & Johnson, and Merck) alone absorb about one-third of all CRO spending. As for CMOs and also for CROs, biotech start-up companies with their dichotomy between ambitious drug development programs and limited resources are the second most promising prospects after “big pharma” (see Section 12.3).

An example of a leading chemical CRO is Albany Molecular (AMRI). It had total revenues of $190 million in 2008 (CRO, 34%; CMO, 51%, royalties, 15%). AMRI does organic synthesis and chemistry development, supported by computational chemistry for molecular modeling, with computer-assisted drug design. Furthermore, it offers different types of libraries: custom, semi-exclusive, focused, and natural products. Finally, AMRI conducts its own proprietary R&D aimed at licensing preclinical and clinical compounds.

Asian, especially Chinese and Indian, companies are emerging as low-cost contract research providers. In India alone, there are more than 20 chemical CROs. The largest is Syngene, a division of Biocon, with over 3600 employees and sales of $360 million in 2008/2009, followed by gvkBio, Chembiotek, and ProCitius (Sanmar). Under the name of Acoris, Hikal runs a research center for 200 scientists in Pune, India (see photos 8 and 18 in the insert). The largest Chinese chemical CRO is WuXi AppTech, Shanghai WaiGaoQiao Free Trade Zone, which was set up in the year 2001 and led by 50 returnees, with 2009 sales of $270 million of R&D services (preparing libraries, carrying out preclinical tests, toxicological studies, process synthesis) and also approximately $30 million of CM. They employ 2700 workers (of which more than 1300 scientists) and are growing 30% per year.

The business of CROs is usually done through a “pay for service” arrangement. Contrary to manufacturing companies, invoicing of CROs is not based on unit product price, but on full-time equivalents (FTEs), that is, the cost of a scientist working 1 year on a given customer assignment. For further details, see Sections 12.5 and 12.6.

Key reasons for outsourcing R&D activities are to

Allow pharma companies to develop drugs faster to maximize patent protection and secure marketplace advantage.Contain cost—since only one in three drugs recovers its cost of development, the pharmaceutical industry needs to find ways to increase the supply of drug candidates and at the same time reduce development costs. Outsourcing to top-tier CROs can accomplish both of these objectives.Deferring internal increases in headcount and expenses.Buffering demand peaks for in-house R&D services.

Contract Research and Manufacturing Organisations (CRAMs) are hybrids combining the activities of CROs and CMOs. Their history is either a forward integration of a CRO, which adds industrial scale capabilities (an early example is Suven, India, a recent one Cambridge Major in the United States), or backward integration of a CMO. Examples of CRAMs are DSM, The Netherlands; Lonza, Switzerland; Nicholas Piramal, and Jubilant Organosys, India. It is questionable, though, whether one-stop shops really fulfill a need. The pros and cons are summarized in Table 2.5.

TABLE 2.5 Pros and Cons of the “One-Stop Shop” Concept

ProsConsFine Chemical/Custom Manufacturing CompanyChance to establish a relationship with a drug company early onHigher overall added valueIn >90% of cases, projects are stopped at the lab sample stageNeed to master two different skills: “quick and dirty” lab scale versus economically viable and ecologically safe large-scale productionPharmaceutical CompanyReduction of number of suppliersIn contrast to the policy of selecting specialists for each step of drug developmentOverdependence on one supplier

The first “pro” entry in Table 2.5, “Chance to establish a relationship with a drug company early on,” is particularly debatable. Most new drugs fail in early-stage development. The situation has worsened over the years. Nowadays, even for developmental drugs in Phase II, the probability of reaching the market is less than 10%. Furthermore, as there is little repeat business, and as in big pharma different functions are in charge of sourcing laboratory chemicals as opposed to outsourcing chemical manufacturing, sample orders only rarely evolve to industrial-scale supplies.

An example in point is Johnson Matthey, the world’s largest supplier of opiates. The products are obtained by plant extraction, which is the company’s core competence. JM acquired the “chemical” CRO PharmEco with the intent to offer a one-stop shop capability. As PharmEco was primarily involved in synthetic chemistry, it is difficult to come across a synergy between the small- and the large-scale business.

Actually, the large fine chemical companies consider the preparation of samples more as a marketing tool (and expense …) rather than a profit contributor. In order to avoid some of the pitfalls, it is advisable to manage the CRO business as a separate unit. Also, the location should preferably be separate to ensure that there is greater accountability and ability for it to operate as a stand-alone business. It should be determined by availability of talent, proximity of universities, and accessibility. Also, the implementation of a rigorous confidentiality and intellectual property (IP) safeguard plan is mandatory to protect both the customer and the CRO. Hovione (Portugal) is an example in case. Its Technology Transfer Centre, which is in charge of CRO, is located in New Jersey.

Innocentive, Andover, MA, USA, is a particular, virtual CRO. It offers companies the possibility to post research problems, such as a synthesis for a new compound anonymously on the Internet. Its website now connects more than 95,000 registered scientists around the world. Financial incentives up to $100,000 are paid to successful problem solvers. The success rate runs at about 35%.

2.4 LABORATORY CHEMICAL SUPPLIERS

Before the life science industry, colleges and universities, medical research institutions, hospital research labs, government agencies, and other facilities can initiate any chemical research activity, they need chemicals, solvents, and laboratory equipment. The laboratory chemical suppliers provide these items. Their combined revenues are about $10 billion. The key success factors are speed, ease of ordering, and number and quality of the products. A laboratory chemist, or team leader, must be in a position to order samples online, and to receive them quickly and in the right quality. Regarding the size of the offering, the five top-tier companies are

Life Technologies, USA (formerly Invitrogen Corporation and Applied Biosciences). Sales were >$3 billion in 2009 and the catalog lists 50,000 products. “Our systems, consumables and services enable researchers to accelerate scientific exploration.”Sigma Aldrich, USA. The company had total sales of $2.1 billion in 2009, of which laboratory chemical supplies account for about 70%. Apart from offering 100,000 small and big molecules, including cell culture media, it has also 30,000 items of laboratory equipment available. Under the name “SAFC Pharma,” a PFC (including high-potency active ingredient [HPAI]) CM business is operated. It represents 30%, or $630 million of total sales.Thermo Fisher Scientific, USA (formerly Fisher Scientific and Thermo Electron). The number one company in this field (sales $9 billion [2009E)]) supplies biochemicals and bioreagents; organic and inorganic chemicals (of which 15,000 are fine organic chemicals); sera; cell culture media; sterile liquid-handling systems; microbiology media and related products; scientific consumable products, instruments, and equipment.Tokyo Kasei Kogyo Co., Ltd., Japan. This company offers 20,000 products.VWR International (owned by CDRV Investors, USA). The number 2 company had sales of $3.8 billion (2009E). The distributor of laboratory supplies represents 5000 manufacturers, of which Merck KGaA’s “analytics and reagents” and VWR’s “scientific products” are the most prominent ones. According to company information, VWR offers 750,000 products, including small- and big-molecule laboratory chemicals.

Online ordering is possible from all these companies. With a market share of about 45%, Sigma Aldrich is the market leader in e-commerce. Apart from the top five, there are many laboratory chemical suppliers with smaller catalogues geared at specific needs, such as BioCatalytics, which offers a ketoreductase kit with about 100 enzymes, or Chiral Technologies, a division of Daicel, Japan, which offers a range of 175 immobilized and coated polysaccharide chiral stationary phases for use with high-pressure liquid chromatography (HPLC), supercritical fluid chromatography (SFC), and simulated moving bed (chromatography) (SMB) equipment. A selection of N-heterocyclic compounds, especially azaindoles, naphthyridines, pyridines, and pyrrolidines, is offered by Adesis, USA. Peptide building blocks are offered by Bachem, Switzerland (9000 products); Polypeptide, Denmark (150 products); Senn Chemicals, Switzerland (1500 products); and Synthetech, USA (250 products); and CBL-Patras, Greece offers 400 different types of “Barlos resins” for solid-state peptide synthesis.

2.5 MERGERS AND ACQUISITIONS (M&A)

The M&A scenario for the fine chemical industry has changed completely over the past 10 years. Around the turn of the millennium, large specialty chemical companies, plagued by an escalating commoditization of their product portfolios (and a collateral profit erosion), such as Akzo Nobel, Avecia (formerly I.C.I.), Clariant, Dow, DSM, Eastman Chemicals, Evonik-Degussa, Honeywell, Rhodia, Shell Chemicals, and Solvay endeavored improving their overall performance by acquiring fine chemical companies. Investment bankers had promoted them as offering a better profit and growth potential than their traditional activities. During this period of “irrational exuberance,” high earning multiples were paid for acquisitions. The climax was reached when Clariant paid a price/earnings (P/E) ratio of 28 for BTP, UK, had to write down the acquisition price, $1.7 billion in 2000, almost totally in subsequent years, and finally sold it to International Chemical Investors Group (ICIG) (see below).

By 2005, the situation inverted from a seller’s to a buyer’s market. As most of their acquisitions had not met with the expectations, the specialty chemical companies began to divest their fine chemical units. At the same time, big pharma companies started offering many of their chemical manufacturing plants for sale as part of their restructuring programs (see Section 16.1). As a large number of plants came on the block, P/E ratios nose-dived from more than 20 to less than 10. Three categories of M&A deals now prevail: (1) Western financial investors have been playing an increasingly important role in the acquisition scene in the recent past (see Table 2.6). Their positive valuation is based on the attractiveness of the buzz word “life sciences” in general and on big pharma’s paradigm change from opportunistic to strategic outsourcing, which should provide growth opportunities for the fine chemical/CM industry worldwide. ICIG, Frankfurt/Main is the leading player. Since its inception in 2004, ICIG has acquired altogether 15 fine chemical units both from pharma and fine chemical companies with a combined turnover of approximately $1 billion. The portfolio comprises a.o. Albemarle’s Thann/Mulhouse works, Astra Zeneca’s Plankstadt/Schwetzingen plant, renamed Corden Chemicals, two Cambrex facilities in Belgium and the United Kingdom, respectively, Clariant’s CM business, several businesses of Rütgers Werke, including WeylChem, Solvay’s Synkem business (originally part of Laboratoires Fournier), and Synthacon, Frankfurt. (2) Far East, mainly Indian, chemical, and life science companies also have become active (see Appendix A.10). Apart from the attractive prices, their motivators are an upgrading of their value-added chain, acquisition of know-how, and creation of a foothold in the backyards of Western life science companies for facilitating business (see also Section 14.2). Apart from these rational justifications, a kind of herd or pack instinct is also gaining ground (“If xy does it, it must also be good for me”), similar to the “irrational exuberance” of the Western M&A activities around the turn of the century. The opposite, namely acquisition of Asian companies by Western life science (fine chemical, pharma, and agro) companies, would also make sense, as it would allow an optimization of the cost structure. However, both the high market capitalization and the high stakes held by founder shareholders prevent any hostile bid in most cases. Actually, the acquisition of Matrix (see also Section 10.1) by Mylan, one of the top 10 U.S. generic companies, is the only major foreign takeover of an Indian fine chemical company. Mylan’s rationale was the backward integration of the supply chain by a strong API-for-generics manufacturer. Mylan paid $736 million for 71.5% of Matrix’s shares, corresponding to a striking P/E ratio of 22.

TABLE 2.6 Acquisitions of Fine Chemical Companies or Divisions by Private Equity Firms

a Clariant Acetyl Building Blocks; The portfolio comprises the former Clariant plant in Sulzbach, Germany, the former Säurefabrik Schweizerhalle plant in Switzerland, and the former Karnavati Rasayan in India.

b ICIG acquired the Cambrex Human Health plants in Cork, Ireland and Landen, Belgium, and made them part of its new company, Corden PharmaChem.

c Arsenal acquired. Rutherford Chemicals for $64 m from Cambrex in 2003; Reilly Tar for $250 m from the Reilly family in 2005.

Note: Names in parentheses (…) designate previous owners.

Category (3) are